CFOs Are Ignoring Supply Chain Risks as Cost Cutting Tightens

June 23, 2009
Only 28% of CFOs interviewed believe procurement has a significant impact on financial risk exposure.

Chief financial officers are shunning risk management in favor of cost cutting, and are failing to treat supply chain dangers seriously enough, according to a study by Basware, a provider of enterprise purchase to pay solutions, in conjunction with the Kelley School of Business in Indianapolis.

Findings from The Cost of Control study reveal that in spite of a high-risk economic environment, CFOs are failing to recognize the importance of closely managing supply chains through procurement, with just 28% of respondents to the study saying that they believe procurement has a significant impact on financial risk exposure.

"Businesses today are defined by their supply chains and some of the high profile business failures of the last 12 months point to this as a root cause. Finance departments across the globe have been guilty of ignoring the real value that their procurement teams can bring to the financial health of their organizations for decades now, so there is real truth to the suggestion that CFOs aren't making the most of what can be an invaluable asset in the fight against the recession," explained Mark Frohlich, associate professor of operations management at the Kelley School of Business.

The study finds that only 46% of financial chiefs see real integration between purchasing and finance processes, representing a major break between two departments that should be working closer than ever to combat the downturn. According to survey results, less than half of the respondents see any level of integration between procurement and finance teams.

"The fact that only 27% of CFOs consider that procurement has a positive effect on enterprise profitability suggests that the procurement role itself and the wider supply chain is not seen as a significant contributor to bottom line performance. However, the companies in the study that take a more holistic, strategic approach realize higher performanc," said Frohlich.

Perhaps unsurprisingly, raw cost cutting was seen as a major priority for the CFOs questioned in the study, with 64% stating that bringing costs down was the top item on their agenda. At the same time, strategic goals seem to be taking a backseat for many, with only 39% citing risk analysis as a major concern for them, and a comparable 39% believing that maintaining or improving margins was key. An unexpected finding, however, given the strategic emphasis in recent years on green sourcing and paperless offices, is that only 24% of respondents remained focused on environmental practices.

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